Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152570
Authors: 
de Bondt, Gabe
Year of Publication: 
2002
Series/Report no.: 
ECB Working Paper 136
Abstract: 
This paper presents an error-correction model of the interest rate pass-through process based on a marginal cost pricing framework including switching and asymmetric information costs. Estimation results for the euro area suggest that the proportion of the pass-through of changes in market interest rates to bank deposit and lending rates within one month is at its highest around 50%. The interest rate pass-through is higher in the long term and notably for bank lending rates close to 100%. Moreover, a cointegration relation exists between retail bank and comparable market interest rates. Robustness checks, consisting of impulse responses based on VAR models and results for a sub-sample starting in January 1999, show qualitatively similar findings. However, the sub-sample results are supportive of a quicker pass-through process since the introduction of the euro.
Subjects: 
euro area
market interest rates
retail bank interest rates
JEL: 
E43
G21
Document Type: 
Working Paper

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